November 2025*
Global equities hit new highs in October, driven by Fed cuts, easing US-China tensions, and sustained investment in artificial intelligence (AI). While concerns of froth have resurfaced – as evidenced by a rise in “AI bubble” Google searches – our core themes remain intact. We expect near-term volatility amid macro uncertainty, but pullbacks offer opportunities to add exposure to AI and USD-weakness trades. Despite short-term headwinds, including delayed US data and tariff risks, we see long-term upside in AI-linked sectors and growing sovereign support for the industry. The USD remains overvalued, reinforcing our view that non-US equities should outperform as the currency weakens.
Global equities reached new highs in October supported by Fed cuts, a US-China truce, and ongoing AI-related spending. The strong performance has reignited concerns of market froth and Google trend terms such as “AI bubble” have risen sharply – arguably making the term itself a bubble (see chart 1). Some market choppiness is likely in the coming weeks following recent equity strength and a series of upcoming macro events. However, our core themes are unchanged, and market volatility or pullbacks should provide opportunities to re-engage in trades linked to AI and USD weakness.
Some short-term market headwinds include the ongoing US government shutdown, which is delaying economic data. Unsurprisingly, the FOMC lacks a strong consensus for a December cut given the limited availability of labour market and inflation data. In addition, the US Supreme Court could rule on the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA), potentially reigniting tariff uncertainty. Finally, some brief weakness in major AI stocks and USD strength have added to market jitters.
Looking ahead to 2026, we expect demand for AI compute will continue to support AI-linked industries and supply chains. The October Bank of America Merrill Lynch Fund Manager survey suggests our view is somewhat contrarian, with 54% of respondents saying AI is a “bubble”. Admittedly, the term is open to interpretation, and we agree there is reasonable risk that US hyperscalers’ capex spending will eventually lead to overinvestment in some areas (see chart 2). However, there is equal or greater upside risk that spending will continue accelerating for years and sentiment continues to broaden beyond the Mag-7 stocks.
Nvidia CEO Jensen Huang recently predicted that the annual global data centre expenditure could reach $3-4 trillion by 2030. Sell-side estimates are more modest, but directionally similar. The scale of spending increases will be difficult for private sector to sustain alone, but sovereigns will likely play a greater role. For example, the US government has begun to emulate elements of China’s industrial policy by taking a 10% stake in Intel stock. Also, at the time of writing, OpenAI’s CFO reportedly asked the government for loan guarantees to reduce the cost of borrowing. The ongoing US-China AI race provides a strong incentive for sovereigns to maintain spending and leadership as underinvestment and losing ground in AI pose national security risks. While the two countries appear to have a reached a one-year truce, the ongoing geopolitical tensions surrounding rare earth exports further reinforce the importance of national security as an important economic and market driver.
The year-to-date depreciation in the US dollar paused in recent months, with the currency experiencing a modest rebound. The short-term path for the dollar is difficult to forecast. Some commentators have highlighted the rise in the Treasury General Account (see chart 3) as a source of dollar liquidity drain as bank reserves fall, potentially adding some upward dollar pressure. Beyond the next few months, we continue to believe the risks to the US dollar are tilted to the downside, as outlined in our special report USD Dollar Weakness: A Crowded Idea, Uncrowded Trade (July 2025). The greenback remains overvalued on long-term valuation metrics and appears to be in the early stages of downcycle following a 15-year uptrend. Historically, non-US equities tend to outperform in periods of US dollar weakness (see chart 4).
| Chg | -2 | -1 | 0 | +1 | +2 | |
|---|---|---|---|---|---|---|
| US | – | |||||
| Canada | – | |||||
| Eurozone | – | |||||
| Switzerland | – | |||||
| UK | – | |||||
| Japan | – | |||||
| Australia | – | |||||
| EM | – |
Note: Up/down arrows indicate a positive/negative change in our asset allocation compared to the previous quarter. A dash indicates no change.
Source: CLIM
| Chg | -2 | -1 | 0 | +1 | +2 | |
|---|---|---|---|---|---|---|
| Canada | – | |||||
| Eurozone | – | |||||
| Switzerland | – | |||||
| UK | – | |||||
| Japan | – | |||||
| Australia | – | |||||
| EM | – |
Note: Up/down arrows indicate a positive/negative change in our asset allocation compared to the previous quarter. A dash indicates no change.
Source: CLIM
*This publication reflects asset performance up to 31 October 2025, and macro events and data releases up to 7 November 2025, unless indicated otherwise.
The information contained herein is obtained from sources believed by City of London Investment Management Company Limited to be accurate and reliable. No responsibility can be accepted under any circumstances for errors of fact or omission. Any forward looking statements or forecasts are based on assumptions and actual results may vary from any such statements or forecasts.